Capacity Planning - Overview and Key Concepts

LeanVlog

30 Jun 201902:55

Summary

TLDRThis video script delves into capacity management, defining it as the maximum output rate of a processor or system. It explores real-life applications, such as concert halls and restaurants, and distinguishes between design capacity, effective capacity, and actual production. The script discusses the importance of capacity utilization and efficiency, which are crucial for operations directors. It outlines strategies for capacity planning, including expansionist and conservative approaches, and categorizes capacity planning into short-term, medium-term, and long-term, each with its own set of drivers and considerations.

Takeaways

📏 Capacity management is crucial for determining the maximum output rate of a processor or system.
🏢 System capacity is a concept applicable to everyday life, such as planning for the number of people a concert hall or restaurant can accommodate.
🛠️ Design capacity refers to the theoretical maximum output under ideal conditions within a given period.
🔧 Project engineers design machines with a specific output rate in mind, such as producing 200 parts per minute.
🔄 Effective capacity is the output expected by a company under current operational constraints, which can differ from the design due to factors like product mix.
🔄 Capacity available can be influenced by changes in work content, product mix, or the speed of operations.
📈 Measuring utilization and efficiency helps in understanding how well a system is performing against its design capacity.
📈 Efficiency is calculated as real production divided by effective capacity, and it's a key metric for operations directors.
📈 Capacity strategy involves deciding whether to add capacity ahead of demand (expansionist) or to wait and see (conservative).
📈 Different time horizons for capacity planning include short-term (0-3 months), medium-term (3-12 months), and long-term (1-5 years), each with different drivers and strategies.
🔩 In short-term capacity planning, options like overtime work can be considered to meet immediate demands.

Q & A

What is the definition of capacity management?
-Capacity management refers to the maximum rate of output of a processor or system, which is the theoretical maximum output in a given period under ideal conditions.
How does capacity management apply to everyday life?
-In daily life, capacity management is seen in determining how many people a concert hall or a restaurant should accommodate, or how many batteries a plant should be able to produce.
What is the role of a Project Engineer in capacity management?
-A Project Engineer is responsible for designing machines to run at a certain output rate, such as 200 parts per minute, which is the design capacity.
What is the difference between design capacity and effective capacity?
-Design capacity is the theoretical maximum output under ideal conditions, while effective capacity is the output expected by the company under current operations constraints.
How can changes in work content, product mix, or equipment affect capacity available?
-Changes in work content, product mix, or equipment can affect capacity available by altering the speed or pace at which work is done, thus impacting the efficiency and output of the system.
What is the formula for measuring utilization in capacity management?
-Utilization is measured by the formula: real production / design capacity.
What is the formula for calculating efficiency in capacity management?
-Efficiency is calculated by the formula: real production / effective capacity.
Why is efficiency important for an operations director?
-Efficiency is crucial as it is the main driver for the operations director, helping to determine the effectiveness of the operations and the need for capacity adjustments.
What are the two main capacity strategies mentioned in the script?
-The two main capacity strategies are 'add capacity to go ahead of demand', which is an expansionist strategy, and 'wait and see', which is a conservative strategy.
What are the main drivers for short-term capacity management?
-The main drivers for short-term capacity management are planning jobs, planning people, and scheduling machines.
What are the main drivers for medium-term and long-term capacity planning?
-For medium-term capacity planning, the main drivers are subcontract operations, adding manpower, increasing or using stocks, adding shifts, and adding equipment. For long-term capacity planning, the main driver is adding installations at equipment with long installation lead times.
How can overtime work be a part of short-term capacity planning?
-Overtime work can be a part of short-term capacity planning as it allows for an increase in production output within a short period, typically up to 3 months.

Outlines

00:00

🔍 Understanding Capacity Management

This paragraph introduces the concept of capacity management, which is defined as the maximum rate of output a processor or system can achieve. It uses everyday examples such as concert halls and restaurants to illustrate the practical implications of capacity planning. The paragraph distinguishes between design capacity, which is the theoretical maximum output under ideal conditions, and effective capacity, which is the output expected under current operational constraints. It also discusses how changes in product mix, equipment, and work pace can affect available capacity. The importance of measuring utilization and efficiency is highlighted, which are calculated as the ratios of real production to design capacity and effective capacity, respectively. The paragraph concludes with a discussion on capacity strategy, mentioning expansionist and conservative approaches, and the need for management to choose a strategy based on demand and risk assessment.

Mindmap

Keywords

💡Capacity Management

Capacity management refers to the process of planning, directing, and controlling the production capacity of an organization. It is crucial for ensuring that the organization can meet its production goals and customer demands without overextending its resources. In the video, this concept is central as it discusses how to manage the maximum output rate of a processor or system, and how to align it with operational constraints and demand.

💡System Capacity

System capacity is the maximum output that a system can achieve under ideal conditions. It is a theoretical measure that helps in planning and designing systems such as concert halls, restaurants, or manufacturing plants. The video uses this term to illustrate the concept of designing for a maximum number of people a venue can hold or the maximum number of products a plant can produce.

💡Design Capacity

Design capacity is the theoretical maximum output that a machine or system is designed to achieve under ideal conditions. It is a benchmark that engineers use when designing machinery or processes. The video mentions that a Project Engineer might design a machine to run at 200 parts per minute, which is an example of design capacity.

💡Effective Capacity

Effective capacity is the output that a company expects from its operations under current constraints. It is the actual output that can be achieved considering factors like product mix and operational efficiency. The video explains that effective capacity is influenced by how well the initial design capacity can be utilized in real-world scenarios.

💡Capacity Cushion

Capacity cushion is the extra capacity that is built into a system to handle unexpected increases in demand or to accommodate variability in operations. It acts as a buffer to ensure that the system can still function effectively even when faced with challenges. The video discusses how capacity available can be affected by work content changes, which implies the need for a cushion.

💡Utilization

Utilization is a measure of how well a system's capacity is being used. It is calculated by dividing the real production by the design capacity. High utilization indicates that the system is operating near its maximum capacity. The video uses the formula 'utilization equals real production / design capacity' to explain this concept.

💡Efficiency

Efficiency in the context of the video refers to how well a system is performing relative to its effective capacity. It is calculated by dividing the real production by the effective capacity. Efficiency is a key performance indicator for operations directors, as it helps them understand how close the actual output is to the expected output under current operational constraints.

💡Capacity Strategy

Capacity strategy is the approach a company takes to manage its production capacity in response to market demand. The video outlines two main strategies: expansionist, where capacity is added ahead of demand, and conservative, where capacity is expanded in smaller increments following demand. These strategies are crucial for managing risk and ensuring that the company can meet customer needs.

💡Short-term Capacity Planning

Short-term capacity planning refers to the strategies and actions taken to manage capacity over a period of 0 to 3 months. The video mentions that the main drivers for short-term capacity management include planning jobs, people, and machines. This is a critical aspect of operations management, as it allows for quick adjustments to meet immediate demand.

💡Medium-term Capacity Planning

Medium-term capacity planning involves managing capacity over a period of 3 to 12 months. The video highlights that strategies for medium-term capacity include subcontracting operations, adding manpower, increasing stocks, adding shifts, and adding equipment. This planning horizon allows for more significant adjustments to capacity to meet anticipated demand.

💡Long-term Capacity Planning

Long-term capacity planning is the process of managing capacity over a period of one to five years. The video explains that this involves adding installations or equipment with long lead times. Long-term planning is essential for ensuring that the company can scale its operations to meet future demand and maintain a competitive edge.

Highlights

Capacity management is about the maximum rate of output of a processor or system.

System capacity is essential in daily life, such as determining the size of a concert hall or a restaurant.

Design capacity refers to the theoretical maximum output under ideal conditions.

Project Engineers are tasked with designing machines to run at a specific output rate.

Effective capacity is the output expected by the company under current operational constraints.

Capacity cushions are affected by changes in work content, product mix, and equipment.

Utilization is measured by dividing real production by design capacity.

Efficiency is calculated by dividing real production by effective capacity and is a key performance indicator.

Capacity strategy involves deciding whether to add capacity to meet demand or to wait and see.

There are different capacity strategies: expansionist, conservative, or a balanced approach.

Short-term capacity planning focuses on planning jobs, people, and machines within 0 to 3 months.

Medium-term capacity planning considers subcontracting, manpower, stocks, shifts, and equipment within 3 to 12 months.

Long-term capacity planning looks at adding installations and equipment with long lead times over one to five years.

In short-term capacity planning, management can also consider adding overtime work.

Capacity management is crucial for operations directors to align with company strategies and market demands.